Stripe Connect: A Way to Get Paid Online

Patrick Collison is a founder of Stripe, a start-up that enables other companies to accept payments over the Internet.

A San Francisco start-up has a new way to ensure sellers can immediately start accepting credit-card payments over the Internet — even if they are just a member of an online service.

Stripe’s new service, Stripe Connect, attacks a significant problem many start-ups, especially marketplace-style ones, face: how to set up payment processing.

Stripe, which has raised $38 million, was built as a service to enable websites to accept credit-card payments. Its Stripe Connect streamlines the process, aiming to make it easier to get companies accepting payments as quickly as possible. After a few minutes of set-up, a website or app can begin accepting payments without going through the torturous process of building a separate payments system, which can take months.

Here’s how it works: When new users sign up for a website or app, they can immediately begin getting paid for any good or service they sell to other consumers. This is possible because Stripe Connect automatically sets up the website’s users with a Stripe account, letting them accept payments directly from a buyer. (For the actual website, it only takes adding a few lines of code to enable Stripe and Stripe Connect.) For example, if you want to offer tutoring through an online website, you can immediately begin accepting credit-card payments if the website uses Stripe Connect. Stripe takes a flat 2.9% fee plus 30 cents off each transaction.

We spoke with CEO and co-founder Patrick Collison, 24 years old, to find out what the new service means. It turns out there are two things coming out of it:

Marketplace-like companies can cut out the risk of holding cash with Stripe Connect. Instead of having to check for fraudulent transactions, start-ups and even larger companies can offload that fraud detection and footwork to Stripe and focus on the user experience and community experience.

Other applications can now tap into Stripe’s data. For example, an engineer could build an application that shows recent transactions processed through Stripe next to a person’s email. Or it can collect data about payment history and habits and mine it for insights on purchasing practices.

Here’s the edited transcript of the interview:

What prompted Stripe to expand into this area?

Patrick Collison: What’s been interesting over the last five years is the rise of companies coordinating new kinds of commerce. Something that’s more native to the Internet. Airbnb, Kickstarter, all these companies that are helping new people to become sellers as opposed to having a company provide the service directly. Before Stripe, it was hard to get payments online, you had to get a merchant account, etc. If you talk to companies like Airbnb and Etsy, it’s hard to run these businesses. They essentially have to have these payments start-ups built within the company. We looked pretty closely at these companies and heard a lot of feedback and quickly realized that there were so many businesses running into this problem that wanted to facilitate payments for their users and finding it was hard to do so.

If you’re an Airbnb and an Etsy, you’re probably successful enough and you can bear this burden, but if you’re smaller and you’re not a well-funded start-up, you might not do this at all. Stripe Connect is our way to facilitate these kinds of businesses. It enables any service to bring Stripe directly to their users.

A company like Shopify, before Stripe they’d get a merchant account and that would take weeks, now they can instantly take a credit card. SkillShare, a community where people can sell their services as tutors, they’re going to use this. With Stripe Connect they can have their users and clients, they can help their users get paid immediately. This was by far the biggest barrier to bringing these businesses onto the Internet.

How long have you guys spent building this?

Collison: We’re a payments company, so our motto can’t be, “move fast and break things.” We’ve been working on this for quite a while, we’ve been in beta for six months, but tomorrow we’re doing a full launch.

How does this actually work?

Collison: I think the most important thing to understand is it not so much enables you to accept payments and send money out. You can create a Stripe account for your users directly, so they immediately receive money when they sell a good or service. If you’re selling something online, you very much want to accept credit cards, that’s what the overwhelming number of consumers want to use to pay.

Will you guys always focus on credit cards? What if there’s a new way of paying?

Collison: We’ve always maintained that Stripe will work with any kind of medium that people want to pay with. This is broadening the base of people who can accept people. To whatever extent Stripe will work with someone else, Stripe Connect doesn’t change that. If buyers want to pay with something else, we will go to that.

So how do the actually businesses benefit from enabling Stripe Connect?

Collison: It shields businesses from having to become payments companies. The money flows directly from the payer to the seller, so the website or business don’t have to hold the funds themselves. You skip the issues of having to route the money around. It’s easier when trying to deal with fraud, too. Say you set up a marketplace tomorrow and you were holding the money yourself and sending it out. For everyone that signs up, you have to answer the question, is this user fraudulent. Obviously Stripe has answered questions every day like this. Our core business is accepting credit card payments. We’ve built an infrastructure and we have a lot of experience, so we’re making it so other companies building these marketplaces don’t have to answer those question.

Does this cost anything extra?

Collison: We don’t charge any fees for the platform, other than our typical transaction cost. We do enable application creators to charge a fee on the transaction if they want. That’s totally up to the application creator.

Are you getting any data out of this on Stripe users? What their kinds of purchasing practices are?

Collison: It now enables you to grant access to your Stripe data through other services, just like when you authenticate with Foursquare and Facebook and Twitter. This unlocks an interesting use case, where companies can do richer things with payments data. Think customer relationship management tools, tax software, you can connect your Stripe account with any system that supports Stripe Connect. Maybe you see your recent payments alongside your email messages. Or they make tax software to integrate with your Stripe account. They can give you really good information on conversion rates. There’s a really interesting class of application to be built around payments data.

We’ve already seen a bunch of companies integrate with the beta program. They integrated Stripe Connect in the beta, some time ago. Their stripe users are their fastest growing cohort of users, they are the fastest growing businesses.